Blog: History of Entrepreneurship

Prior to 1950, expensive new projects originated from the large companies. Sure there were small companies and inventors but the kind of funds that were needed to form technology companies did not exist in that area. Of course this was all before digital technology was born.

The digital computer was waiting for the hardware to drive it.  With the invention of the transistor, it became the foundation for the digital technology that spawned products and applications. In the 1950’s, the first commercial mainframe computer was developed by two gentlemen, Eckert and Mauchly at the University of Pennsylvania. A company I worked for, Univac, bought the rights to their computer.

I worked on a high-speed printer before transistors and what drove the circuitry in the printer was a vacuum tube about 10 inches high. The utilization of the transistor really started in the late 1950s. It grew in the 1960s for radios and calculators, and as a result, there were some independent companies forming.

It was necessary for big money to be available to develop computer systems and equipment, and venture capital funds, that had the vision, started forming in the late 1960s.

IBM was already growing with their mainframe. And their completion at first were large companies. The initial part of the venture capital money was funding transistor manufacturing companies and peripheral companies, especially with Asian connections. This really was the launching of entrepreneurships.

I was involved in the computer market and during the 1970s several Orange County companies were funded to develop parts of the computers like memories and peripherals. The company I joined was founded by 5 entrepreneurs to develop and manufacture military memories, and grew to $120 million in revenue when we switched over to the commercial market. There was a hotbed of venture money also in the New England, and at that time we started selling memories to several startup companies.

In the 1970’s, several companies were formed in Orange County and it became a hub for mini computers. Another form of startups evolved because it took little capital to form a manufacturing assembly company. For the same reason independent software companies were springing up.

A perfect example was the startup Microsoft in the mid-1970’s that a started writing software for IBM. But the all-time Hall of Fame Startup is Apple who built their first computer around the same time as Microsoft was formed, and now have a market cap of $903 billion.

In the 1980s, when the personal computer came along, the investment to startup was nowhere near the level of mainframe computers or minicomputers. It was printed circuit boards assemblies and peripherals, so it was relatively easy and very inexpensive. Up to that point, computer system manufacturers controlled the peripherals that were used for their systems. Thanks to Microsoft and their open architecture, the PC became a household commodity. It was easy to form a software company and a multi-billion-dollar market developed adding complimentary products to Microsoft.

The volume of computers in the marketplace went from: mainframes, hundreds, minicomputers thousands, and personal computers, millions. Software drove the PC, whereas hardware drove mainframes and minicomputers. As a result, the volumes overwhelmed U.S. manufacturers and shifted the abundance of manufacture ring to Asia.

Ironically, IBM who dominated the early mainframe computer market with over 75%, failed in the PC market.

Talk about entrepreneurs, there were several startup companies building and selling PCs in Orange County, California. There were several pages in the Yellow Pages alone of assembly companies. Assembly companies became ubiquitous – until Asia took over. One major company survived, and I would nominate Kingston Technology in Orange County, California to the Assembly Hall of Fame. The first time I visited them, there were a handful of people assembling memory parts, and today they passed over $7 billion dollars in revenue.

During the 1980s software companies really starting to proliferate in the marketplace. Companies like Microsoft actually spawned numerous companies that were able to utilize Microsoft software for solving problems and applications for the computer software industry. In the 1990s, software also became a hotbed for companies as telecommunications and cell phones started to enter the market. One time in my consulting practice, I was watching five companies for Angel Investors to track for them and make sure their investments were working on their business plan.

In the 1990s, telecommunications and Internet were the big thing. I joined a company as an advisory board member. They were able to take a startup company servicing the military market and pivot to the commercial world. They grew to a $800 million public company in over little over 10 years. The initial funding came from several doctors, who made a ton of money when the company went public.

Up to this point, Venture Capital companies alone were providing much of the funding to help the technology companies grow, but then venture capitalist funds were moving away from startups. Apparently they decided it took just as much energy to fund hundreds of thousand dollar deals as millions of dollar deals, so they decided to concentrate their resources to explore the big deals. Angel investors, typically providing the early funding, concentrated into the startup phase, and today Angel investors play a very big role in getting companies started.

But the 1990s were unique and almost caused the death of entrepreneurship. The use of the Internet started to explode and products utilizing the Internet excited the investors. In the late 1990s, there was so much money around, investors with money, in some cases made a deal with an entrepreneur based on what was written on a cocktail napkin. All kinds of companies were funded and Silicon Valley really took off, but the bubble burst and numerous entrepreneurs and thousands of employees had their dreams killed, and billions of dollars were lost by investors.

Somehow investment money became available again during the period 2002-2010 and there was a growth again in the digital technology world, and for so called gadgets. Cell phone manufacturing got to over 1 billion cell phones a year, and that was far bigger than computers ever were. The beauty of this was the large the number of entrepreneurs that were able to utilize the phone in millions of ways. In fact, there are over 2 million applications for Apple’s iPhone itself. The unique feature of providing a service utilizing the Internet or mobile phone required very little capital in many cases to get started. I worked with a student that was able to form a chat room and get a nice income, with people paying to enter it, during his time at a University he was attending.

The evolution of the combination of the Internet and social media world has spawned many companies. I fear the potential of a serious downside might occur with another recession. Companies like Facebook and Google depend heavily on advertising. When the revenue goes down for a company, one of the first areas they look to reduce spending is their advertising budget.

Most of the Giants in the world started by entrepreneurs were mostly in the Silicon Valley and the San Francisco area. Apple, Google, and Facebook became Giants in the overall economy in the world as well as the U.S. The investment area is changing. If you look at the investment map. Silicon Valley is still the leader, but you will find new areas, like Chicago, Denver and Austin Texas growing in funding entrepreneurs.

The entrepreneur thing seems out-of-control for some people because there’s a group of companies called Unicorns that were worth $1 billion in valuations before revenue.

So where is entrepreneurship going? During the present decade, I have been privy to work with three universities in Southern California, who have formed a curriculum for entrepreneurs. It is not just unique to those universities, because I know several other colleges and universities in that area that have some entrepreneur courses in their schools. In what I call the new culture, many of these student entrepreneurs are pretty far along before raising significant capital.

The interesting thing about the developers now is that a significant part of what the company needs is writing code and this is far from what was needed to develop products in the past. It doesn’t require an engineering education to write some of the basic code. In the early days of product development, some took as much is 18 months. I worked with students who during the semester, develop a whole new software application product. What I call touch and feel products, where there is a physical item developed, are losing ground. In the numerous presentations I look at, a small percentage of them are now available. Software and applications are in the significant majority of entrepreneur startups I get to see (over 100 presentations last year).

The Giants I mentioned earlier, like Apple and Google along with   Amazon have the highest market capital values in the world. This makes them tremendous role models for entrepreneurs, and will encourage people to start at an early age, dreaming about being an entrepreneur.